Does anyone remember the mortgage crisis of 2008?  It seems like so long ago that wall street and mortgage lenders that created securitized mortgages nearly brought down the economy. Did you know that the recession officially ended in 2009? I bet you’re wondering what the mortgage crisis has to do with the student loan crisis.  One word; SECURITIZATION.

The same financial investment scheme that nearly brought down the world economy and forced millions of Americans into bankruptcy was used in the student loan market.  Millions of student loans were sold off into the bond market and securitized.

Securitization 101

First a trust is created.  Like many trusts, it has a purpose and assets.  Only, the assets of these trusts are student loans.  Filings are made with the SEC and made public by a prospectus disclosure. Investors can buy shares of these "asset-backed" securities.

The student loans are originated by Lender A and the proceeds are paid to the school for the student’s tuition and expenses.  Then, Lender A sells the loan to the Sponsor or Depositor of a securitized trust like [National Collegiate Student Loan Trust].  The Sponsor/Depositor then sells the loans to the trustee of the trust.

Why am I explaining all this?  Well, when a debt collector comes calling for you to pay up, it’s important to know whether they have a legal right to do so.  When student loans are sold and transferred so many times there are many more records that are required to be maintained.  Proof the debt is valid becomes more difficult.

Student Loan Crisis 2014

There is currently nearly $1.3 Trillion dollars in outstanding student loan debt in the United States.  Federal loans [backed by the government] enjoy many programs to help borrowers repay their loans.  Unfortunately, private loans not guaranteed by the government are not required to offer any benefits and many of these loans have been securitized. 

The GOOD NEWS is that consumer bankruptcy attorneys have more options than ever before to help.  We can create a payment program borrowers can afford through a Chapter 13 Bankruptcy Case.  We can sue the lenders and Discharge Student Loans under 11 U.S.C. 523(a)(8) when the borrower can establish and Undue Hardship.  An Undue Hardship Discharge completely eliminates the debt. Free consultations can help borrowers make well informed decisions and get on with their lives.